The correct answer is: A. It reduces.
A lien is a legal right that a creditor has to seize a debtor’s property in order to satisfy a debt. In the context of life insurance, a lien is often used to secure a loan that has been taken out against the policy. Once the loan is repaid, the lien is released and the sum insured is restored to its original amount.
However, if the loan is not repaid, the insurer may have the right to reduce the sum insured by the amount of the outstanding debt. This is because the insurer is now exposed to a greater risk of loss if the insured person dies.
Options B, C, and D are incorrect because the sum insured does not increase, is not temporarily suspended, or is not replaced by a newly-underwritten sum insured once the period of the lien expires.